Court File and Parties

COURT FILE NO.: CV-20-653209 MOTION HEARD: 20220825 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Marchant Realty Partners Inc., as Agent, Plaintiff AND: Charles Hunter Milborne and Andrzej Roman Kepinski, Defendants

BEFORE: Associate Justice Jolley

COUNSEL: Miranda Spence, counsel for the moving party defendant Milborne Eric Sherkin, counsel for the responding party plaintiff Alexander Hamilton, student-at-law, observing for the defendant Kepinski

HEARD: 25 August 2022

REASONS FOR DECISION

[1] The defendant Charles Hunter Milborne (referred to as “Hunter”, to distinguish him from the Milborne Group, discussed below) brings this motion for an order removing Miller Thomson as lawyers of record for the plaintiff. He argues that Miller Thomson was his personal lawyer historically and that he is currently a near client of the firm. In those capacities, he has provided confidential information to the firm and risks having it used against him should the firm continue to represent the plaintiff.

[2] While styled in this action CV-20-653209, identical motions are brought in 2309522 Ontario Inc. v. Milborne et al (CV-20-653219) and 2309522 Ontario Inc. v. Milborne et al (CV-20-653212) and this decision is applicable to each of the three motions and actions. In each action, it is alleged that the plaintiff lent funds to a borrower, which then defaulted. The lenders have sued Hunter on the personal guarantee he gave in respect of each of the loans.

[3] Miller Thomson admits that Hunter was a former client, that retainer ending in either 2019 or 2011, but denies that he is a current near client. The firm further denies that it received confidential information relevant to these actions such that it should be disqualified. If it did receive relevant confidential information, the firm argues that removal is not an appropriate remedy as it has taken necessary steps to ensure that the lawyers with carriage of these actions do not have access to any files or information of Hunter.

The Applicable Law

[4] The parties agree on the applicable law.

[5] If Hunter is found to be a current client or near client of the firm, the “bright line” rule articulated in Canadian Pacific Railway v. McKercher and Wallace 2013 SCC 39 (“McKercher”) at paragraph 31, following R. v. Neil 2002 SCC 70, holds that “a law firm cannot act for one client whose interests are adverse to those of another existing client, unless both clients consent. It applies regardless of whether the client matters are related or unrelated.”

[6] The bright line rules applies where the immediate interests of clients are directly adverse in the matters on which the lawyer is acting. It does not apply where it would be unreasonable for the client to expect that the lawyer would not act against it in unrelated legal matters, as in the case of institutional clients who litigate frequently (McKercher, supra, at paragraphs 32 and 33).

[7] If it is determined that Hunter is not a current near-client, the firm may not act in a matter directly adverse to him where it may use Hunter’s confidential information against him. In this analysis, the court asks whether the firm received confidential information attributable to the solicitor and client relationship relevant to the matter at hand. If so, it then asks whether there is a risk that the information will be used to the prejudice of the former client. If the new retainer is sufficiently related to the former retainer, there is a rebuttable presumption that the new retainer raises a risk of prejudice to the former client. (McKercher, supra at paragraph 24, following MacDonald Estate v. Martin, 1990 CanLII 32 (SCC)).

Is Hunter a current near-client?

[8] The evidence before me is that Hunter is the directing mind of the Milborne Group, which is comprised of a number of entities including Milborne Management, Inc, MM Forest Hill Inc., MM Real Estate Holdings Inc., MSD Marketing Inc., M&M 2018 Ltd., AmandaCo02 Inc. and Niagara. While he is not the director, officer or shareholder of all the corporations in the Milborne Group, the directors, officers and shareholders include members of his family and business partners. He often directs and instructs the directors, officers and shareholders.

[9] The firm conducted a conflict search in May 2021 when it was first approached to take over these files for the plaintiffs. It ran a search against Charles Milborne but not Charles Hunter Milborne or Hunter Milborne, the name used by Hunter. No conflicts appeared.

[10] When it was advised in October 2021 that Hunter went by that name, it ran a further search on “Milborne, Hunter”. That search came up with 21 hits. Hunter is the listed client contact on each of those 21 files involving various entities under the Milborne Group umbrella. A number of the files had been closed for some years but some remained open.

[11] The firm ran a further search in February 2022 upon receipt of these motion materials. In the course of that search, it additionally identified Niagara Global Developments Ltd. (“Niagara”) as an active client. The firm determined that the Niagara matters were not related to the guarantee claim against Hunter and did not present a conflict.

[12] Hunter is a shareholder of Niagara. He deposed that Niagara retained the firm starting in 2013 to carry out a corporate reorganization and that “[a]s part of this corporate reorganization [Niagara] provided confidential information to Miller Thomson into my personal interest in the properties and assets owned by [Niagara] and its subsidiaries.” Hunter was not cross examined on his affidavit.

[13] In considering who is a client, the court takes a purposive and contextual approach, which includes considering how the corporations operate, whether they are closely held and whether the present claimant is so closely associated with the client that he will also be deemed to be a client. As noted by Master Muir, as he then was, in Terracap Investments Inc. v. 2811 Development Corp. 2010 ONSC 1183 at paragraph 29, where a firm acts for a corporate entity that is part of a small group of closely held private family companies, the individual behind the companies may be considered a near-client of the firm.

[14] In Terracap, there was evidence that the individual in question was the one who instructed the firm on behalf of the corporate client. Applying that analysis to this case, the evidence is that the Milborne Group is a real estate development business which Hunter founded and which remains closely associated with him. This is in part borne out by the fact that Hunter is the firm’s only listed contact for the Milborne entities. The evidence before me is that he directs the Milborne Group business, which is held by friends and family and he is a shareholder of Niagara.

[15] In considering the contextual relationship of the Milborne Group and Hunter, I find that Hunter is a person sufficiently involved in or associated with both the firm’s existing client, Hunter, and the Milborne Group companies, so as to effectively make him a current client of the firm.

[16] By acting for the plaintiffs in these actions against Hunter, the firm is representing a client whose interests are directly adverse to the interest of another client or near client, Hunter. On this basis, I find that the firm is precluded from acting for the plaintiffs and must be removed as their counsel.

[17] If I am wrong in that regard, I have gone on to consider whether the firm is in breach of the duty of confidentiality it owes to Hunter if it continues to act against him.

Does the firm’s continued retainer breach its duty of confidentiality?

[18] In the two part test set out in MacDonald Estate, the court asks whether the lawyer received confidential information attributable to a solicitor and client relationship relevant to the matter at hand and, if so, whether there is a risk that it will be used to the prejudice of the client.

[19] The firm argues that the existing retainer does not breach any duty of confidentiality owed to Hunter. First, it argues that it did not receive confidential information relevant to this action and, second, there is no risk that the information would be used to Hunter’s detriment as no lawyer working on this matter has had or now can have access to his confidential information.

[20] Considering the first branch of the test, the MacDonald Estate court stated: “In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.”

[21] It is not disputed that Hunter was a personal client of the firm, a relationship that continued until either 2019 (on his evidence) or 2021 (on the evidence of the tax and estate partner in the firm who advised him).

[22] The firm argues that it did not receive confidential information of relevance to this retainer, which strictly concerns a claim on a guarantee that Hunter admittedly signed. This assumes, as was pressed upon me, that a determination of relevance is restricted to the defences that Hunter has raised in respect the guarantee. I find this view too narrowly constrained. The evidence from Hunter, on which he was not cross-examined, is that he provided the firm with personal banking information, banking information of the various Milborne Group companies, information related to his personal investments as well as investments beneficially held for him, real properties owned by him and information related to real properties owned by the Milborne Group in which he might have a beneficial interest, along with information relating to assets of his family and various trusts established for his family.

[23] There was also evidence from James Hutchinson, a former partner of the firm, who deposed that Hunter was his client from 2018 until Hutchison’s departure from the firm in 2021and gave Hunter personal tax, estate and wealth planning advice. Hutchinson concluded that “In the course of providing Hunter with estate and tax planning advice, I gained comprehensive knowledge of Hunter’s personal assets and finances. Similarly, in the course of advising on the structure and management of various Milborne Group companies, I gained knowledge of how Hunter’s assets, money, and property were allocated within the various corporations.” Hutchinson deposed that a number of lawyers in the firm assisted him in advising Hunter.

[24] The fact alone that Hunter retained the firm to provide him with tax advice, estate planning advice and family trust advice may well influence the firm’s perception of his wealth and ability to pay, its strategy and its recommendations to Marchand about whether it should abandon the claim, how it should approach mediation, whether it should settle or aggressively pursue payment on the guarantees. I am not satisfied that the firm has met the heavy burden of demonstrating that it did not receive relevant confidential information.

Is there is a risk that the confidential information could be used to Hunter’s prejudice?

[25] Hutchinson deposed that he worked with six named lawyers on the various tax, wealth and estate planning matters, all but one of whom remain at the firm. The firm did another search after seeing Hutchinson’s affidavit and determined that only three current lawyers had done work on the matters outlined and none of these since 2015.

[26] As to whether there is a risk that the confidential information could be used to the prejudice of Hunter, a review of the firm’s conflict vetting process is appropriate. When the firm was first retained in May 2021, no screen was put in place due to a name search that did not include “Hunter”. In October 2021, an updated conflict search was done to include Hunter Milborne. As a result of that search, a screen was put in place but not until 4 February 2022, more than eight months after the retainer. It appears that one litigation partner and his assistant were excluded from accessing the Milborne Group files. As an aside, that February 2022 firewall memo noted that eight lawyers, seven paraprofessionals and nine assistants had been involved in the Niagara matters over the years. A further search was then done after receipt of the Hutchinson affidavit and a further updated screen put in place in May 2022 to include those clients referenced in that affidavit.

[27] As stated in Sim & McBurney v Aird & McBurney LP 2016 ONSC 4063 at paragraph 43:

While the initial recipients of the confidential information at Gowlings have sworn they had no discussions with the litigation team managing this file for the plaintiff, the lack of a swift and monitored ethical wall means that it is impossible to verify the degree to which the confidential information has effectively been restricted to that limited group at this stage.

[28] The court in Ford Motor Co. of Canada v. Osler, Hoskin & Harcourt 1996 CanLII 8070 noted that failure to put a screen in place when the conflict first arises is “fatal”, stating “For if the screen is not in place for a material period of time, in the instance case a substantial one, there is no “clear and convincing” evidence within the meaning of MacDonald Estate v. Martin, with the result that the inference must be drawn that relevant confidential information was conveyed.”

[29] I find the firm has not provided clear and convincing evidence that all reasonable measures have been taken throughout its retainer to ensure that there would be no disclosure of Hunter’s confidential information to the members of the firm who are now acting adverse in interest to him. There was a period of a full year when the Niagara matters were not appropriately screened. It is evident that there are lawyers at the firm who assisted Hunter in his various personal and business matters and who were not subject to a screen for some time.

[30] As noted in MacDonald Estate, supra:

Nothing is more important to the preservation of this relationship than the confidentiality of information passing between a solicitor and his or her client. The legal profession has distinguished itself from other professions by the sanctity with which these communications are treated. The law, too, perhaps unduly, has protected solicitor and client exchanges while denying the same protection to others. This tradition assumes particular importance when a client bares his or her soul in civil or criminal litigation. Clients do this in the justifiable belief that nothing they say will be used against them and to the advantage of the adversary. Loss of this confidence would deliver a serious blow to the integrity of the profession and to the public's confidence in the administration of justice.

[31] There is no evidence that the plaintiff will be significantly prejudiced by having to retain new counsel. The plaintiffs have not sworn affidavits or otherwise alleged any prejudice they may suffer if the firm is removed. Another firm initially acted for the plaintiffs, including drafting the statement of claim in 2020. The plaintiff then moved the files to Miller Thomson in May 2021. The matters are still at the pleadings stage, waiting for the outcome of the removal motions to be determined, so no duplication of work will result. The claim is not overly complex. With no disrespect to Miller Thomson, it is likely that another firm can suitably act for the plaintiffs in their claim on these guarantees.

[32] I accept that disqualification is not automatic. However, given all the factors above, I conclude that no remedy other than disqualification can appropriately address the risk of improper use of confidential information or adequately maintain the repute of the administration of justice (McKercher LLP, supra at paragraph 61).

[33] The parties have agreed that the unsuccessful party shall pay $20,000 in costs to the successful party. Order to go removing Miller Thomson as plaintiff’s counsel in this action and in the actions noted in paragraph 1, with costs payable to Hunter by the plaintiff in the amount of $20,000.

Associate Justice Jolley Date: 7 September 2022